What Happens if You Default on a Second Mortgage Loan?
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Second mortgages can be lifesavers. They can help you get out of debt, pay for college, or even handle emergencies. However, if you suddenly find yourself unable to make the payments on your second mortgage in Cambridge, the lender may take action. Knowing what to expect can make the process a simpler one.
The First Mortgage Takes Priority
Your first mortgage will always take priority over the second, and this priority determines which lender you pay first. However, this does not mean that you can simply forego making the payments on your second mortgage when times are tight. When it comes to keeping your home and property, or avoiding foreclosure, both of these loans are equally important.
Defaulting on the First Mortgage
If you have more than one mortgage and you default on the first, then the original lender is likely to start foreclosure proceedings. If the bank successfully forecloses on your property, that bank will usually sell the property in order to recoup some of its losses. The second lender may not receive a penny from that sale since the first lender is the priority, and in that case, you will still be responsible for repaying your loan.
Defaulting on the Second Mortgage
Conversely, if you have more than one mortgage and you default on the second while the first is in good standing, whether the second mortgage lender starts foreclosure proceedings usually depends on the market value of your home. This means that if the sale of your home would bring enough to repay your first and some or all of your second mortgage, the second lender is very likely to start foreclosure proceedings.
Equity Matters to a Second Lender
When you apply for a second bad credit mortgage in Cambridge, the lender will typically look at the amount of equity in your home. The term "equity" describes the value of your home beyond what you still owe on your mortgage. For instance, if you owe $40,000 on your mortgage but your home is worth $200,000, then you have $160,000 in equity to secure a second mortgage. Thus, if you default on your second mortgage, the lender will undoubtedly foreclose since it can recoup its money via the equity in your home.
Going to Court
In cases where there is not enough equity in your home to guarantee repayment to the second lender, that lender will likely skip foreclosure. However, this does not mean you are in the clear. That lender can take you to court and sue you for the funds owed. The courts may garnish your wages or even levy your bank account until the balance on your bad credit mortgage is fully paid. In you find yourself unable to avoid such a situation, then bankruptcy may be a better option.
When you take out a second bad credit mortgage in Cambridge, you should truly understand the repercussions of falling behind. Foreclosure is a real possibility when you default, and if there is not enough equity in your home to cover the first and second mortgage, you may even find yourself in court.